Abstract
The binomial tree method is the most popular numerical approach to pricing options. However, for currency lookback options, this method is not consistent with the corresponding continuous models, which leads to slow speed of convergence. On the basis of the PDE approach, we develop a consistent numerical scheme called the modified binomial tree method. It possesses one order of accuracy and its efficiency is demonstrated by numerical experiments. The convergence proofs are also produced in terms of numerical analysis and the notion of viscosity solution.
| Original language | English |
|---|---|
| Pages (from-to) | 445-454 |
| Journal | Acta Mathematica Sinica, English Series |
| Volume | 16 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2000 |
| Externally published | Yes |
Bibliographical note
Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].Funding
Received November 5 , 1999, Accepted December 9, 1999 Supported by National Science Foundation of China (No. 19871062)
Research Keywords
- Convergence
- Currency lookback options
- Modified binomial tree method
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